Canada’s Surprise Job Surge Clouds Economic Outlook

Canada’s economy added a net 46,700 jobs in September and the unemployment rate unexpectedly decreased, data showed on Friday, weakening bets for a 50 basis-point rate cut this month.

The jobless rate fell for the first time in 8 months to 6.5%, compared with analysts’ estimate for an increase to 6.7% from 6.6% in August. Analysts polled by Reuters had forecast a net gain of 27,000 jobs.

The healthy jobs data could assuage some concerns about growing slack in Canada’s labor market and may weaken the case for larger-than-usual rate cuts by the central bank.

The central bank has lowered its policy rate by 25 basis points at each of its last three meetings, and it is expected to cut rates once more at its next announcement on Oct. 23.

Financial markets are fully pricing in another 25 basis point rate cut next week and odds for a super-sized 50 basis point rate cut dropped to 36% after the jobs data from 53% earlier.

“There is no doubt that this is a strong report but, put into the context of many months of weakness and demand not keeping up with labor force growth, I do not think this is a worthy excuse to derail a 50bp rate cut this month,” said Kyle Chapman, forex markets analyst at Ballinger Group.

The Canadian dollar reversed most of its early morning losses after the release of the jobs data and was trading 0.07% weaker to 1.3749 to the U.S. dollar, or 72.73 U.S. cents. Bond yield on the two-year government bond was up 5.8 basis points to 3.230%.

The job additions were in full-time work, which recorded its largest gain since May 2022 and more than offset a decline in part-time jobs, Statistics Canada data showed.

The strong jobs data follows last week’s robust number from Canada’s top trade partner the United States, where job gains increased by the most in six months in September.

However, some economists were skeptical as the local jobs data usually tends to be volatile with some margin of error.

“The mixed report isn’t enough to make a 50bp cut a sure thing in October,” said Katherine Judge, economists at CIBC Capital Markets.

The BoC’s Business Outlook Survey to be released later in the day and inflation numbers coming next week will be more vital, she added.

The wholesale and retail trade, the information, culture and recreation and the professional, scientific and technical services sectors contributed the most to the gains.

The decline in the unemployment rate in September was driven by youth, whose unemployment rate fell by 1 percentage point to 13.5%, Statscan said.

The average hourly wage growth for permanent employees slowed to an annual rate of 4.5% from 4.9% in August. The closely-watched wage growth rate was the slowest since the 3.9% recorded in June 2023.

The Bank of Canada has flagged weakness in the labor market among main points of concern in its effort to juggle the impact of opposing forces on inflation — the persistently high cost of shelter and services, and a weakening economy and rising unemployment.

The proportion of the population that was employed fell 0.1 percentage points to 60.7% in September, while the participation rate fell to 64.9% from 65.1% in August, the third decline in four months.

Employment in the goods sector decreased by a net 3,600 jobs, while the services sector gained a net 50,200 jobs.

(Reporting by Ismail Shakil and Promit Mukherjee in Ottawa; Additional reporting by Dale Smith; Editing by Nick Zieminski)